Posts Tagged ‘Nonprofit Mergers and Alliances’

Special thanks to Thomas A. McLaughlin for this article. McLaughlin is the founder of the nonprofit-oriented consulting firm McLaughlin & Associates. He is the author of Streetsmart Financial Basics for Nonprofit Managers, 4th Edition (Wiley). His email address is tamclaughlin@comcast.net. This article first appeared in The Nonprofit Times.

Lately when we have been facilitating a group at a conference we have made a point of asking the following two seemingly unrelated questions:

How old are you?

At what age do you expect to retire?

Before we move on, answer the two questions above for yourself (in an actual session, responders are asked not to print their names). Think about the answers your parents’ and your grandparents’ generations would have given to the questions. If we were able to go back in time it would be a virtual certainty that your answers would look very different from those of your parents and grandparents had they grown up in the United States.

While we do not yet have enough responses to claim a statistically valid group, the outcomes to date are worth examining. Here are the averages of the responses we’ve received:

How old are you? 56

At what age do you expect to retire? 70

If these results remain consistent, it confirms that we are nearing the cusp of a major change in nonprofit organizations (not to mention the rest of the economy). It won’t be business as usual as we near 2030, which seems to be the projected ‘average’ retirement year of our current 56 year olds.

Because the numbers of Baby Boomers born each year began to drop significantly in the early 60’s, the Gen X and Millennial generations will not come close to the Baby Boomers’ higher birth rates. Kelly White Donofrio LLP writed in her blog that, we are already hearing about an unusual level of shortages of management candidates, not to mention a shortage of qualified Gen Xer CEOs. Even entry-level candidates seem scarcer now than ever before.

Nonprofit employee trends aren’t the only ones due for some changes. Nonprofit entities themselves are another area where long-time patterns seem to be changing. The number of active nonprofit public charities steadily grew from the 80s until 2010, when the upward trajectory abruptly decreased to about 2003 levels.

The pattern is probably not arbitrary. In all likelihood, the recession that began in 2008 right after the Wall Street crash of 2007 had a tempering effect on the numbers of new nonprofits each year. Organization creators that had already finished the application process and turned in their request for IRS approval may well have lengthened their intense startup phase, while other potential post-recession applicants for nonprofit status may have deliberately slowed their process in order to begin providing services once the economic conditions improved. The recession may also have caused some to give up altogether. Fortunately the upward trend appears to have resumed, although perhaps with less velocity.

Putting the Baby Boom into context reveals some hard-to-see advantages. The biggest one is that the Boomers were the healthiest generation to reach retirement age. Most of the Boomers reached full employment age at just about the time that hard physical labor began to decline as a major part of most jobs. As a result, the Baby Boomers were the first
generation that didn’t have to work largely in the factories. By the time that the first Boomers were ready to find permanent work, the factories had already begun migrating overseas.

As a result, the Boomers were the first generation in history to be able to work in non-physically stressful environments. Improvements in health care, communications, education, and widespread motorized travel all contributed to far less physical decline than at any time in the previous two hundred years.

Overall Impact

Nothing brings as much pressure on a nonprofit organization as the lack of staff. At the moment we infer from economic reports – and the firsthand observations of CEO’s and others – that the Boomers’ exits are already being felt on both ends of the generational spectrum. Naturally the first shortage is likely to be felt in the executive ranks as those individuals either reach their preferred retirement age, or move on, but there are also staff shortages in direct care.

Fortunately there are a few sources of labor (and optimism), many of which relate to immigration. For example, the Pew Charitable Trusts report that the foreign-born U.S. population grew 109% between 1990 and 2012 (the overall impact of immigration varies significantly in different parts of the United States). Moreover, the Pew Charitable Trusts quote Census Bureau projections that net international immigration will be the major driver behind US population growth between 2027 and 2038.

What Can be Done

If the shortage of available employees follows the predicted trend lines above, it could affect virtually all nonprofits in the country. A major part of the pressure will come from the fact that the birthrates of both the latter part of the Gen Xers’ generation and all of the Millennials’ generation are half that of the Boomers’, so today’s status quo will eventually feel more like the status squeezed.

If we are right about our analysis, this situation will evolve relatively slowly over a period of time, which should make it easier to accommodate but harder to recognize. Start your strategy planning now so that it fits the circumstances before you feel the squeeze. Here are some suggestions:

Re-Work Your Staffing Patterns

If you are feeling the pressure at the bottom of your workforce as well as at the top, it’s time to re-think your staffing patterns. While we have no way of proving this, it would not be a surprise if your underlying assumptions about direct care workers are still embedded in the 1980 to 2000 era. And while you’re doing this, be sure to apply the same scrutiny to your assumptions about your senior-most executives. Do you really need a CIO and his full staff now that you have that 24-hour technology company on call?

Re-Think Your Service Models

If you don’t already know the year your nonprofit was founded, pull out your most recent IRS Form 990 and look exactly three inches below the word ‘income’ as in ‘Return of Organization Exempt From Income Tax’. You’ll find a box labeled ‘L’ and the words Year of Formation followed by the four digit year of your corporation’s founding. If your organization was founded in the two or so decades since 1970 there is a chance that the organization is still at least partially grounded in that era. That could mean that some of your service models are similarly aged.

Consider a Merger

One way to accommodate the realities of the 21st century is to grow your scale. The combination of declining birth rates (labor) and steady needs for service (aging clients with longer lifespans) will put pressure on many nonprofits. Lately we have detected less instinctive opposition to mergers than had been true in the past, suggesting that this opposition might lessen. The advantage of larger scale operations run correctly is that the resulting efficiencies – one ‘back room’, one Human Resources department, etc. – can strengthen the entire organization.

Today’s U.S. economy has never had aging baby boomers like we see today, nor a 50% drop in birthrates. Navigating the next two or three decades will force many nonprofits to change their models and to try different approaches. Being wanted will be just part of the terrain.